Pioneer Human Services A Case Study

Size: px
Start display at page:

Download "Pioneer Human Services A Case Study"

Transcription

1 Pioneer Human Services A Case Study January 26, 2000 Paul Sommers, Principal Investigator Bronwyn Mauldin Sara Levin Northwest Policy Center Institute for Public Policy and Management Daniel J. Evans School of Public Affairs University of Washington Seattle, WA

2 NORTHWEST POLICY CENTER The Northwest Policy Center is focused on economic development and workforce strategies to create and maintain a vital economy in the Northwest region. Our staff include economists, political scientists, and public policy analysts with expertise in regional economics, economic development strategy, workforce development, and creation of effective public/private partnerships to enhance access of low income people to quality jobs. Our Northwest Job Gap Study has provided a much-cited definition of living wage jobs in the Northwest and extensive data on patterns of job creation by industry, wage level, and skill requirements. INSTITUTE FOR PUBLIC POLICY AND MANAGEMENT The Northwest Policy Center is one of five applied research centers within the Institute for Public Policy and Management. The other four research centers focus on the welfare of children, education reform, urban vitality, and fiscal policy. A fifth center provides training to public sector employees on a wide variety of topics. The Institute has served as an incubator for new centers and research programs within the Evans School. DANIEL J. EVANS SCHOOL OF PUBLIC AFFAIRS The Evans School trains public sector and non-profit organization managers and policy analysts, offering two-year graduate degrees in both daytime and evening programs. The faculty of the school include leading scholars on diverse topics ranging from international organization management to cost benefit analysis to education reform. The Evans School is named for Daniel J. Evans, three times elected as Washington State s governor, and former U.S. Senator, and college president, who serves as a symbol of dedicated public service for our students and faculty.

3 Dedication This research report is dedicated to the late Bennett Harrison, who served as a professor at the New School of Social Research in New York City until his untimely death early in Prof. Harrison believed in the importance of this research, and assisted the authors in finding funding and in convincing the funders to participate in this endeavor. He also participated in the research design and many early meetings with the management of Pioneer Human Services. Throughout these endeavors, he served as a source of encouragement and inspiration to all of us, as he did for many, many students and colleagues in a variety of academic and practitioner settings. Acknowledgements Many individuals provided assistance to the research team and their assistance is gratefully acknowledged. Many staff members at Pioneer Human Services spent time educating us on how they conduct their business, including former President Gary Mulhair, the current president Mike Burns, and the managers of many organizational units within Pioneer. A number of current and former trainees attended focus group discussions and participated eagerly in these meetings. Most of all, Larry Fehr, Senior Vice President for Quality Outcomes, provided patient and thorough advice, counsel, and assistance at every step of the research. We owe a great debt to all of these individuals associated with Pioneer Human Services. Two state agencies provided data on Pioneer trainees and comparison group members; the assistance of Peggy Smith at the Department of Corrections and Jeffrey Jaksich and Douglas Jacques at the Employment Security Department, State of Washington, made the empirical outcomes section of the study possible. Larry Fehr and Jeffrey Jaksich, along with colleagues Stephen Rathgeb Smith and Peter Wood at the Daniel J. Evans School of Public Affairs, University of Washington, reviewed drafts of this report, a service that was very valuable to the authors. Two foundations provided the funding that made this research possible: The Annie E. Casey Foundation The Ford Foundation

4 Executive Summary This is a case study of Pioneer Human Services (PHS), a large, entrepreneurial non-profit organization headquartered in Seattle, Washington that provides employment training, counseling, housing, and other services to persons at the margins of society, particularly ex-felons and former substance abusers. The case study includes a discussion of the literature on entrepreneurial non-profits, a summary of PHS s mission and corporate philosophy, descriptions of the full range of PHS programs and business operations, and a review of PHS s financial and organizational structures. The study examines PHS s employment training programs, which are offered inside businesses owned and operated by PHS in such fields as metal fabrication, printing and distribution, food preparation and service, and food distribution. These businesses offer products and services both inside the Pioneer structure and on the open market. Well known customers include Boeing, Hasbro, Nintendo, Costco, and Microsoft, and employees of Starbucks. An attempt is made to assess the efficacy of these employment training programs using three sources of evidence: interviews with managers of PHS programs, focus groups with current and former trainees, and data collected from state correctional and employment agencies concerning the status of a cohort of former trainees and a matched comparison group. Major conclusions of the case study are: PHS is an excellent example of a non-profit that uses business methods to establish an organizational mission, design strategies to achieve that mission, and operate its programs in ways that managers believe best help clients achieve a higher degree of employability and self-sufficiency. PHS now owns a number of facilities in the Seattle areas and elsewhere in Washington state; employs over 900 people, many of them former trainees, and generates over $50 million in annual revenues. Using a business model throughout the organization forces staff to pursue a double bottom line, focusing on both profitability or commercial feasibilty while also tending to the social service needs of clients who are truly at the margins of society. Managers at PHS speak of the dynamic tension created by this double bottom line; successful management of this tension is a key to the organization s success.

5 PHS has succeeded admirably in created a self-sustaining employment base for exfelons, former drug abusers, and others at the margins of society, and in helping many other clients from these groups to successfully enter the labor market after a period of training at PHS. While systematic outcome tracking systems have only recently been created at PHS, both this study and preliminary results from PHS s new tracking system demonstrate that the majority of clients are able to find employment when they leave PHS. A distinguishing characteristic of PHS is its long-standing business relationship with The Boeing Company, which has afforded PHS the opportunity to train clients in high end metal fabrication technology. Trainees manufacture cargo liners for Boeing aircraft, equiment housing for Heart Interface, and a wide variety of other products using state-of-the art equipment in two manufacturing facilities. Based on this success, PHS has launched new business ventures, adding manufacturing services for other customers, providing food distribution services, operating a central kitchen for its own facilities, and a commercial restaurant in the building occupied by Starbucks corporate headquarters. Recently, PHS has purchased a printing company to expand the range of training opportunities it can offer to its clients and is developing other new business ventures. The Pioneer Enterprises group was formed within the corporate structure of PHS to manage these business enterprises. Compared to a group of ex-felons sent to other work release facilities (matched on sex and age), ex-felons who lived in Pioneer work release facilities and worked in the Pioneer Industries manufacturing/employment training program have somewhat better outcomes in terms of criminal recidivism, hours worked after leaving training, and hourly wages earned. However the differences between the Pioneer work release cohort and the comparison group are relatively small, and the comparison work release cohort did better on some measures than some other Pioneer cohorts including women in the pre- and work-release program, and ex-felons not on work release who were accepted as trainees at Pioneer. In reality, most ex-trainees and most ex-work release participants included in this study are working at relatively low wages, about $7/hour shortly after leaving Pioneer ii

6 or other work release facilities, and about $9/hour a year later. While these wage levels fall near the poverty level, these two groups both show substantial wage progression indicating a degree of success in the labor market. A significant degree of recidivism also characterizes both groups. Over a quarter of both groups had been convicted of new offenses about 18 months after leaving Pioneer/work release. There is a difference in re-incarceration rates, however. Just 6.4 % of the Pioneer trainees had been re-incarcerated in state penitentiaries, compared to 15.4% of the comparison group. Helping individuals to re-enter the labor force and ordinary society after a period of crime and/or drug abuse is not an easy task. Pioneer has chosen a difficult mission, and has shown significant success in pursuing this mission. Given the population the organization focuses on, this degree of success is in fact laudable. Conclusions regarding the quantitative outcomes associated with former trainees and work release participants are limited by statistical issues. There are too few cases in some groups examined to yield firm conclusions, and issues of sex and race/ethnicity are intertwined with group membership, making interpretation of these results difficult. One can interpret many of the employment outcomes as yet another demonstration that women tend to earn less than men, and minorities less than whites. Focus groups with a relatively small number of current and former trainees suggest that there are areas where PHS could improve, particularly in offering more support to workers in problem resolution with respect to a wide variety of personal issues, and assisting trainees in finding work outside Pioneer if they decide to leave when they complete their training programs. Based in part on this study, Pioneer management has decided to expand its services to trainees through a new employment services unit and employment assistance based inside its business enterprises. This study suggests several lessons learned with implications for many other public and private organizations: Ex-felons and former drug abusers can decide to change their lives and become productive employees and citizens; employment training in a supportive iii

7 environment that deals with personal issues and skill development on an individualized basis is helpful in making what is still a difficult transition back to non-institutionalized life. The mix of training, services, and support provided by Pioneer appears to be critical to a successful transition to non-institutional life for many of the organization s clients. Many former work release clients stay on at Pioneer as permanent employees because they value the supportive environment Pioneer has created within its workplaces. Business subsidiaries can make a substantial contribution to the toolkit available to non-profit organizations. Internal control of capital funding can be achieved, and a more realistic, although still supportive, environment can be created for helping client populations leave institutional settings and return to normal life. However, non-profits adopting a business-based model should expect significant challenges that are very different from traditional strategies for operating social service organizations. Customers of an entrepreneurial non-profit can sometimes be key partners in realizing the social service mission of the non-profit, but key cost and quality performance targets must be met for these external partners. Market discipline will be strict for non-profits who head down the entrepreneurial path, and marketoriented decision-making must be thoroughly integrated within the non-profit organization. iv

8 TABLE OF CONTENTS INTRODUCTION... 1 PURPOSE... 2 METHODS... 2 LITERATURE REVIEW... 4 WHY ARE NONPROFITS GOING INTO COMMERCIAL ACTIVITIES?... 4 HOW DO SOCIAL ENTERPRISES DIFFER FROM TRADITIONAL NONPROFITS?... 5 Typologies... 5 Double bottom line... 7 CORPORATE PHILOSOPHY... 9 OPERATIONAL PHILANTHROPY... 9 ADDING VALUE TO PEOPLE AS THEY ADD VALUE TO PRODUCTS MARKET DISCIPLINE ORGANIZATIONAL STRUCTURE AND PROGRAMS ENTERPRISES GROUP Pioneer Industries Pioneer Food Service Pioneer Distribution Services Greater Seattle Printing and Mailing PROGRAMS GROUP Community Corrections Behavioral Health and Housing Services Support Services Group HUMAN RESOURCES GROUP QUALITY OUTCOMES GROUP FLOW OF CLIENTS WHO ARE PIONEER CLIENTS? BASIC TRAINING AT PIONEER INDUSTRIES OTHER FORMAL TRAINING PROGRAMS AT PHS EMPLOYMENT ASSISTANCE PROGRAM BECOMING A PIONEER TRAINEE Work release Pre-release Other entryways THE "FARM TEAM" CONCEPT OTHER JOBS AT PHS INTERNAL JOB PATHS MOVING ON FINANCES REVENUE SOURCES EXPENDITURES PLANS FOR FUTURE GROWTH EXTERNAL RELATIONSHIPS CUSTOMERS - MUTUALLY BENEFICIAL RELATIONSHIPS THROUGH NETWORKS Boeing/Pioneer Industries Starbucks/Food Operations v

9 BUILT-IN NETWORKS AT GSP&M...50 NETWORK POTENTIAL THROUGH DISTRIBUTION SERVICES SALES AND MARKETING CLIENT AND EMPLOYEE SOURCES Department of Corrections Expanding networks through welfare reform On-Call/Temporary Staffing Other referral sources NETWORKS FOR FUNDING SOURCES NETWORKS FOR CLIENTS TRACKING OUTCOMES TOMS MISSION OUTCOMES OUTCOMES ASSOCIATED WITH EMPLOYMENT TRAINING DATABASE COMPILATION Correctional Outcomes Employment Outcomes OUTCOMES ANALYSIS Recidivism Outcomes EMPLOYMENT OUTCOMES Sub-Group Employment Outcomes Multivariate Analysis SUMMARY AND DISCUSSION OF FINDINGS Financial barriers to leaving PI ANALYSIS PHS ON THE SOCIAL ENTERPRISE SPECTRUM DOUBLE BOTTOM LINE SELF-RELIANCE AND NETWORKING ISSUES WHY TRAINEES CHOOSE TO LEAVE OR STAY BUNDLING SERVICES ADAPTING TO CHANGE WEALTH CREATION OR MARKET CORRECTION RECOMMENDATIONS TO PHS Ensure that low-skill contract jobs do not become a low-wage dead end for some employees TO NONPROFITS TO BUSINESSES vi

10 LIST OF FIGURES AND TABLES Figure 1: The Social Enterprise Spectrum... 6 Figure 2: Continuum of Philanthropic Activities Figure 3: Pioneer Human Services Organization Chart Figure 4: Flow of Clients Figure 5: Five Step Basic Training Entry Process Table 1: Hours Worked by Program People Table 2: Criminal Recidivism Table 3: Employment Outcomes Table 4: Industry of Employment Table 5: Employment and Earnings Table 6: Comparison of Hourly Wages Pre- and Post-Incarceration Table 7: Wages by Demographic Group vii

11 INTRODUCTION Pioneer Human Services (PHS) 1 is a large nonprofit in Seattle, WA that employed more than 900 people and earned nearly $50 million in revenues in Its mission is to create opportunities for people at the margins of society -- including current and former prison inmates, recovering drug addicts and alcoholics, and others -- to realize personal, economic, and social development. To that end, PHS employs and trains clients in PHS-run business enterprises, operates work release and other housing facilities, and provides a wide range of social services. Through participation in an integrated array of employment, housing, and counseling services, clients have an opportunity to learn skills and behaviors that will lead to successful, self-sufficient, participation in society. PHS uses a complex mix of commercial and nonprofit methods and goals to meet its mission. As an entrepreneurial nonprofit, PHS uses market-based methods to fund many of its activities. It meets its capital needs primarily through a combination of retained earnings from the sale of products made by its clients, from tax-exempt bonds issued by government entities, and through contracting with state and local government agencies. In its 36-year history, PHS has grown from a small group of recovering alcoholics and former inmates just trying to "make it," to a nonprofit serving more than 6,000 clients annually. PHS's client base is also expanding, both because prison populations are increasing, and due to PHS's decision to add programs for welfare-to-work clients. PHS is an organization in the midst of tremendous change as it adapts to changing conditions and growing needs. During the two years we studied this organization, it added new business enterprises, acquired new residential and service facilities, re-organized its internal structure several times, added many new clients, created an internal evaluation program, and changed CEOs. Our dominant impression as a group of outside observers was of a very dynamic organization, capable of defining new directions and capably organizing itself to implement new strategic initiatives. 1 In this report, Pioneer Human Services will be referred to as PHS and Pioneer interchangeably. Acronyms for its subdivisions will be noted as they are introduced. 1

12 In recent years, researchers, journalists and foundations have become aware of a growing trend among American nonprofits to turn to market-based commercial enterprises to fund their programs. While this appears to many to be a new phenomenon, PHS has been using commercial methods to fund its job training programs for more than thirty years. In that time it has grown exponentially and expanded its scope, making it perhaps the largest job training social enterprise in the country. PHS s business networks include some of the largest manufacturers and retail establishments in the Puget Sound region, and it is the top provider of community correctional facilities in Washington state. Because of its longevity, size and scope, as well as its reputation in both the business and nonprofit worlds, Pioneer may have many lessons to offer nonprofits around the country that are considering moving toward more market-oriented funding mechanisms. Purpose The purpose of this case study is threefold. First we offer a picture of Pioneer at a certain point in time, , explaining what this organization does and how it does it. The second purpose is to try to measure whether Pioneer is successful in enabling people leaving prison and chemical dependency rehabilitation to attain living wage jobs and keep them. The third is to uncover lessons for PHS, nonprofits interested in commercial enterprises, and businesses that may consider hiring former convicts, welfare-to-work clients and those who have completed drug and alcohol rehabilitation programs. Methods This study focuses primarily on the basic training program at Pioneer Industries, but places that PHS group within the larger organization. The research team collected and analyzed data from three main types of sources. First is PHS-generated information. This includes interviews with managers throughout the nonprofit, site visits, financial data and public relations materials. Second is information on recidivism and employment for a group of trainees that were in PI training in These data were statistically analyzed, and the results described in detail in Chapter 8. The third data set is trainee-generated information, which was gathered through a series of five focus group discussions the results of which are discussed in Chapter 9. By triangulating between these three sources of data, PHS management, outcomes analysis and 2

13 trainee sources, we learned not only how PHS works but also the impact of its programs on trainees. This study begins by putting PHS into the context of social enterprises, reviewing the literature on the subject. The description of PHS begins in Chapter 2 with its own view of the work it does, as evidenced by the organization s key corporate philosophies. PHS s organizational structure is outlined next. Chapter 4 is in many ways the heart of the case study: who are PHS s clients and how do they flow through its extensive training programs? Analysis of PHS s financial methods is next. That is followed by an account of PHS s external network relationships, which form the basis of both its commercial and nonprofit activities. After that is a look at PHS s internal outcomes evaluations. Our own outcomes evaluation follows in Chapter 8. Chapter 9 reports on trainees perspectives on what they gained from PHS training. Finally, we conclude the study with a discussion of common themes, recommendations to PHS, and lessons for other nonprofits and businesses. 3

14 LITERATURE REVIEW Why are nonprofits going into commercial activities? There have always been nonprofits that run businesses to fund their philanthropic activities. Nonprofit hospitals charge fees for services, museums run gift shops and cafes, and private universities charge tuition that is underwritten by grants and donations. However, beginning in the 1980s, several trends emerged that have led to a substantial increase in the number and types of nonprofits engaging in commercial activities. Government devolution In the 1980s, cutbacks in federal government spending led to cutbacks in both the funding and provision of social services for Americans. Federal policymakers called on nonprofits to provide many of those services, and left state and local governments to fund them. While some direct spending on social services was replaced by block grants to states and local governments, this was generally inadequate to meet the needs of nonprofits and their increasing client base. As caseloads at nonprofit agencies rose dramatically, the traditional sources of funds to support services for those clients shrank. No longer able to rely on government grants, nonprofits were faced with funding challenges. Competition for funds At the same time, the number of nonprofits increased exponentially, increasing competition for government and foundation grants and contracts. For every three [nonprofits] that existed just seven years ago, there are four today, and they are all gathering at the same watering hole (Boschee, 1998, p. 3). Self-sufficiency Nonprofit agencies began to consider their clients dependence on the agency for service to be problematic. Nonprofit agencies worry that institutional charity [will] undermine beneficiaries self-esteem and create a sense of helplessness (Dees, 1998, p. 56). Social enterprise, with a focus on businesses that provide training and jobs for clients, is seen as decreasing client dependence and increasing client self-sufficiency. Political culture Beginning in the 1980s, American policymakers began to shift away from command and control regulatory mechanisms toward market-based solutions to social problems. According to Dees, this trend is driven by the idea that when feasible, market-based 4

15 solutions are more sustainable and easier to grow (Dees, 1996). The popularity of the market has trickled down to the nonprofit sector in recent years. The for-profit sector has deeper pockets Many nonprofits have recognized that there is simply more money available to tap into in the for-profit sector than in the nonprofit sector. Availability of funds for commercial activities For many of the reasons listed above, more philanthropic organizations today are funding commercial activities, providing greater incentive for nonprofits to enter into business ventures. Support for entrepreneurial non-profits has come from nationally reknowned foundations such as the Ford Foundation, foundations dedicated to entrepreneurial ventures such as the Roberts Foundation, and a new crop of family foundations created by successful high tech entrepreneurs. How do social enterprises differ from traditional nonprofits? Typologies How do social enterprise ventures differ from traditional nonprofits? Primarily, their makeup includes a blending of philanthropic and commercial motives, methods and goals (Dees, 1996). Dees (1996) describes all social enterprises as falling along a spectrum ranging from the typical mission-driven nonprofit to a purely commercial, market-driven organization (See Figure 1). In his work on social entrepreneurs, Dees has charted a rising trend of nonprofits meeting their organizational mission by participating in market ventures. These organizations often have mixed methods, subsidizing some clients but charging full price to others. They may use a mixture of volunteers and paid staff to provide services, and their revenues can be made up of a mix of sales of products or services and donations or grants 5

16 6

17 Alternatively, Emerson and Twersky (1996) have developed a typology of five types of nonprofit enterprises. His system is based on a list originally developed by long-time PHS president Gary Mulhair. Sheltered - A sheltered workshop program which benefits from formal contracting preferences from the federal or local government Open market An enterprise receiving no preferences in award of contracts or sales Franchise The enterprise is established through purchase of a franchise from another corporation, i.e. Juma Ventures purchase of a Ben & Jerry s Ice Cream. Program based The venture arises directly out of program activities, which were not originally revenue generating. Cooperative - Workers control share of business, while also receiving wages for work done Double bottom line When nonprofits undertake commercial activities, as practitioners and researchers have discovered, they face the challenge of meeting a double bottom line. While traditional nonprofits are mission-based, and managers make decisions on only one bottom line the needs of the clients they serve - nonprofits engaged in social enterprise face two bottom lines: meeting clients needs while earning profits in the organization s business enterprises. Difficulties arise when the two bottom lines come into conflict, which can easily happen when clients needs cost time and money on the business side. Nonprofits may find themselves pulled away from their original bottom line of providing services to clients as they add commercial activities. On the other hand, Boschee (1998) argues that by engaging in social enterprise, a nonprofit avoids the typical haphazard program expansion, and instead can sharpen [its] organizational focus and expand [its] impact (p. 4). In other words, a new business function built into the nonprofit s existing mission can be more effective than accepting grants to create new programs that may not fit the existing mission. The nonprofit engaging in commercial enterprises may have the independence, created by their self-provisioning of funds, to set their own goals and design their programs the way they choose, not according to funders needs and requirements. 7

18 This focus on a double bottom line may simply be a new look at an old problem. Despite the name, nonprofits have always had to acquire financial resources to fund their programs. Many nonprofits have changed their mission, with varying degrees of subtlety, to meet demands from government or foundation funders. Particularly in job training programs, nonprofits often must find some middle path between providing services to the most needy or to those most likely to benefit from their programs, based in part on the organization s sense of its mission and in part on the demands of funders. Perhaps the difference for social enterprises is the uncompromising finality of the market. If its business fails to earn profits, a social enterprise cannot request a grant extension or negotiate new evaluation requirements. This type of organization must resolve double bottom line issues in a manner that is profitable. The double bottom line can also create tension among the professional staff of a nonprofit engaging in social enterprise, particularly an organization that had functioned previously as a traditional nonprofit. Adding the second bottom line is also likely to cause some other, less visible changes in organizational culture. In choosing to move to the social enterprise model, managers who had focused primarily on meeting the agency mission through social services, are faced with a new vocabulary of profit and loss, debt and equity. In a nonprofit with business and social services side by side, managers will face a conflict between the business staff focusing on the financial bottom line, and social workers trying to meet client needs. Issues of compensation arise as well: social enterprises often hire staff with business experience rather than nonprofit backgrounds. That experience comes with a price, generally that paid in the for-profit world, not in typically low nonprofit wages. 8

19 CORPORATE PHILOSOPHY PHS prides itself on following a unique model or strategy for providing services to its clients. Former PHS President Gary Mulhair calls this strategy "operational philanthropy," which he defines as "adding value to people as they add value to products." He argues that this is an explicit "wealth creation" strategy with implications for both the organization s clients exfelons and former drug addicts and its customers the businesses and public organizations to which PHS sells goods and services. The corporate strategies inherent in the operational philanthropy model underlie financial management policies, the substance of its training programs, and the broader culture of the organization. The use of wealth creation strategies by PHS is best understood in contrast to the far more common source of funding for nonprofits, wealth transfers. Generally, nonprofits seek out individual donations and compete for government and private foundation grants to fund their services in a wealth transfer system. In this system, a finite amount of existing "excess" capital is tapped to pay for social benefits. Proponents argue that this model actually creates new wealth to fund social goods and services, thus expanding the total resource pool available to fund such goods and services. But for PHS, wealth creation has additional significance. PHS's use of wealth creation as a funding model matches its underlying culture of organizational and individual self-reliance, and personal responsibility. This organization has very deliberately created a self reliance model for the organization that reflects the message of self reliance it teaches to its clients. PHS finances its operations through a complex mix of government contracts, tax breaks, bank and foundation loans, and business enterprises. These will be described in more detail in Chapter 6. What follows here is a discussion of the underlying corporate philosophies in the organization. Operational Philanthropy PHS calls its strategic approach "operational philanthropy," and locates it on the far end of a continuum of philanthropic activities (See Figure 2.) This continuum, created by former PHS 9

20 10

21 president Gary Mulhair, shows how businesses supply funds in different ways for nonprofit, socially beneficial activities. These may range from simple donations to "cause marketing," where a company donates part of its profits from the sale of certain items to a nonprofit. Operational philanthropy, PHS argues, is unique in that businesses actually become customers of the nonprofit, thus building a much closer, mutually beneficial relationship between the two entities. A customer such as Boeing receives parts, while PHS gets jobs that provide a realistic setting for employment training, and revenues that can be reinvested in their programs. Clients benefit from these business arrangements because they receive training and work experience that cwill assist them in finding employment after they leave PHS, and they receive additional social services that may be needed on a case specific basis. PHS also argues that its operational philanthropy model is the only one on the continuum where wealth is actually created. Building mutually beneficial relationships with its network partners mirrors the organizational culture of not accepting "handouts." In the same way that trainees must prove themselves in order to be accepted into the program and move upward, PHS must prove itself to the business organizations and government agencies it sells and contracts to. Adding Value to People as They Add Value to Products The PHS core philosophy focuses on "a value-added approach to personal, economic and social development." The organization sees its clients as suffering from economic, social and personal handicaps. 2 By providing clients with training, jobs and social services to meet their needs, PHS "adds value" to these people and helps them become productive members of society. In economics, this is referred to as human capital investment. In the case of PHS's clients, the cost of such investment is higher than most companies are willing to make. PHS sees the gap between what companies are willing to invest in people and the investments particular client group needs as a "personal development cost gap." That gap is filled by social services, drug treatment programs and, if those fail, prisons. PHS has stepped into that gap. By teaching its clients how to succeed in society, PHS adds value to its clients, increasing the odds that they 2 Whether or not PHS s program people are legally handicapped affects their financial bottom line, as will be discussed in the chapter on Finances. 11

22 will find employment, avoid drug abuse, and in other ways become self-sufficient, law-abiding citizens after they leave PHS. The other half of this philosophy is based on two more fundamental ideals at PHS. First, people need to work. Second, PHS must be financially independent. Therefore, its clients work to "add value to products." This work models behavior expected of clients after they leave the sheltered setting provided by PHS, and it provides revenues that are the source of funds to pay PHS salaries and wages, as well as covering other costs. At the same time, that work is also a training process that "adds value" to the people performing the work. Through classroom instruction and on-the-job (OJT) training, clients learn specific skills required in various types of businesses, as well as the soft skills, such as good attendance, grooming, and appropriate workplace behavior norms, critical to finding and keeping a job on the open market. PHS has thus created a symbiotic relationship where the act of clients adding value to products adds value to themselves. PHS uses the revenues generated from the sale of those products to supplement this value-adding by providing more social services that add value to its clients. Social services enable the clients to add more value to more products, which generates more revenues to be reinvested in the value-adding process. Again, this is not just a financial methodology, but part of the cultural ethos at PHS. Market Discipline Market discipline at PHS is maintained through several internal accounting mechanisms, and through the general corporate culture. While PHS benefits financially from its nonprofit legal status, those benefits are manipulated through "market discipline" techniques in unique ways. For example, Pioneer Industries is not required to pay full FICA deductions for its trainees due to its status as a sheltered workshop training the handicapped. However, PHS requires PI to include the full FICA amount it would have to pay if it were an outside business as part of its expenditures. That amount is paid into PHS's accounts. The difference between PHS's actual FICA payment to Social Security and that received from PI is reinvested in Pioneer s training, programs. Similarly, PHS charges its residential building managers fair market rent, whether the building is being paid off by a low-interest loan, or has been paid for already. Again, the 12

23 difference between what PHS actually pays on the building and what it receives from the building managers is reinvested by Pioneer. That reinvestment may be into low-income housing, where rents received from residents are actually lower than the market rate paid by other tenants to PHS, causing that housing unit to operate at a loss. Practices such as these have a cultural impact of forcing PHS employees to think like businesspeople and keep that business-oriented mindset in their day-to-day work. The dual aim is to keep each division competitive in the market while earning revenues for PHS. By maintaining competitiveness in the market, PHS avoids becoming dependent on outside funders. If the tax breaks such as that for FICA were removed, PI could continue to function. Whether PHS overall could continue to provide the same level of services in the long run without outside assistance is another question. Because it earns revenues in the marketplace and accumulates those earnings from successful business transactions, PHS has somewhat more discretion in the way it provides social services than a traditional nonprofit that depends exclusively on public agency contracts and grants from foundations or other donors. When it seems to benefit the clients, PHS can supplement the intensity, duration, or quality of services required by the state under contractual relationships, or add services the state does not fund. In addition, retained earnings allow PHS to launch new programs more easily than a traditional nonprofit. The organization s consistent use of market discipline in both accounting and corporate culture helps maintain those revenues and thus PHS's independence. In this regard, the financial bottom line may be perceived to be more important than the people bottom line. However, one can also argue that the financial bottom line reinforces the people bottom line in certain ways. One PHS manager stated that she would not want her job or those of her employees to depend on unpredictable, short-term outside grants. Focusing on the financial bottom line provides some amount of certainty to fund the people bottom line. 13

24 ORGANIZATIONAL STRUCTURE AND PROGRAMS PHS's organizational structure at the top resembles that of most traditional nonprofits. The president of the organization answers to a Board of Trustees, whose role is mainly financial oversight, confirmation of policy decisions, and ensuring that management does its job. PHS also has a Board of Governors, which meets infrequently and provides advice and counsel to the agency president as needed. The president in turn oversees the operations of the agency, and represents PHS to the outside community. For fourteen years, from 1984 to 1998, PHS was run by Gary Mulhair, a dynamic individual who had been associated with the organization since Mulhair left PHS in 1998 and became a consultant on social enterprise. A nationa search for a successor resulted in the hiring in 1999 of Michael J. Burns, former CEO of Dutch Boy Paints, Kroehler Furniture, and The Rymer Company. This marks the first time in the history of the organization that the head of PHS is a person with no professional background in any type of social services, and may lead to significant changes. In its day-to-day operations, however, Pioneer looks more like a business (see Figure 3). PHS is divided into five operating groups, each under the direction of either a Senior or Executive Vice President, who, in turn, answers to the president of the organization. The groups are marked by five distinct areas of focus - Enterprises, Programs, Human Resources, Support and Mission Outcomes. Together, the groups encompass the organization's nearly 900 employees - a mix of program people, trainees and non-program employees. Despite distinct functions within PHS as a whole, the operating groups have several shared characteristics: all are undergoing some degree of centralization, each has its own level of flexibility which allows for change and centralization, and finally, each must balance the inevitable tension between being a nonprofit social service agency which must also function as a business. Enterprises Group The Enterprises group contains the majority of PHS's business and training programs. This group employs about 530 people in its four units, and in 1999 projected revenues of $31.7 million, 58.6% of total PHS revenues. Enterprises is run by Executive VP Dave Guth. Combined, the four Enterprise divisions -- Pioneer Industries, Pioneer Food Service, Pioneer 14

25 15

26 Distribution Services and Greater Seattle Printing and Mailing -- have over 1,000 contracts with local, regional and national business customers. Each division is run strictly as a business - it must turn a profit and provide customers with a quality product for a fair price. At the same time, Enterprise divisions must also provide jobs and training for program people. Business units within the Enterprises group employ some permanent employees as well as trainees in production positions. For example, at Pioneer Industries, approximately 85% of the employees are trainees or former trainees. In the other business units, a certain number of job slots is set aside for trainees, with the mix of trainees and permanent employees depending on the needs of each unit. This mix of permanent employees and trainees permits the business units to maintain quality and cost standards for their production processes while also providing training slots, the raison d être of these businesses. The contrasting focuses of business and social service play out in different ways in each unit. Overall, managers find themselves making decisions which often conflict with one or the other of the bottom lines. Units in the Enterprises group undergo constant change, as does the rest of PHS. As businesses, units are forced to respond to market demands. If products are no longer needed, managers must be efficient and stop production. If a better way to produce something is discovered, the Enterprises group must change production systems in order to remain competitive. As businesses, they must be able to respond quickly in order to keep their customers, or to attract new ones. In recent years PHS has developed a standard of hiring unit managers with business backgrounds, instead of social services. Of five division managers, three have been hired directly from business in the last two years. The strong business background of managers aids the Enterprises group in maintaining market competitiveness. Pioneer Industries The oldest and best known of the Enterprise divisions is Pioneer Industries (PI), which also epitomizes the mix between program people, training and business. PI is a metal fabrication company that manufactures cargo bay liners and a variety of other parts for the Boeing 16

27 Company, equipment chassis for Heart Interface, and other fabricated metal products for other companies in the Seattle area. PI is divided into two areas of operation: the long-standing contract with Boeing and a sheet metal fabrication and finishing facility (the commercial side). Combined, the two units employ 278 people and had projected revenues in 1999 of $16.1 million (50.9% of all Enterprises revenues, and 29.8% of all PHS revenues). Trainees receive training and certification in various areas of production. (Training is described in greater detail in Chapter 5.) PI s Boeing work is located at Plant 2 in Southwest Seattle. In this plant, workers manufacture cargo liners and other parts for the aerospace company. In PI s Plant 1, employees perform a variety of manufacturing jobs for other commercial customers, including chemical conversion coating of aluminum components, wet-coating, powder coating and silk screening. The Boeing work housed in Plant 2 is considered a sheltered workshop, a legal designation for nonprofits that provide employment opportunities and rehabilitative services for "handicapped" people. Trainees on the Boeing side are mainly ex-felons leaving state prisons via pre-release or work release programs. Classroom training also takes place at Plant 1, in a series of classrooms on the second level of the plant. Standing on the walkway and looking down at the plant floor, an observer sees a variety of heavy machines, including water jets and saws. Walking around the floor, one observes a group of skilled technicians performing labor-intensive tasks. This is a smoothly-running process with several levels of supervision. Outside observers would not know the backgrounds of the individuals working, only that they are all performing as part of a team to get their work done on time. Pioneer Food Service Pioneer Food Service (PFS), led by Rick Pinney, is based out of a building in the SODO district, an industrial area south of downtown Seattle. This unit has two main projects: Starbucks' corporate cafeteria (Mezza Café) and deli (Pronto), and Central Food Service (CFS). CFS is an institutional kitchen that provides 500,000 meals annually to PHS-run work release facilities as well as to other contracting organizations. The cafeteria is the more visible of the programs, 17

28 while CFS epitomizes the PHS tendency to keep services in-house. PFS provides employment to about 30 people and had projected revenues of $2.3 million in Pioneer Distribution Services Pioneer Distribution Services (PDS) is Pioneer s newest creation, a unit created from a combination of existing divisions and expansion of their services with limited support from a Ford Foundation Program-Related Investment (PRI). PDS consists of three divisions: Pioneer Food Buying Service, Pioneer Contract Services, and Pioneer Warehousing Services. By mid- 1999, those divisions combined employed 140 people, although many of them on a temporary basis. In its first year of operation PDS was originally projected to earn $6.5 million in revenues, but those figures were revised downward in the second half of the year. To house this division, Pioneer purchased a warehouse in South Seattle not far from their existing facilities, then hired their own Construction Services (described below under Support Services) to renovate the building. Started in 1979, the Food Buying Service (FBS) distributes more than seven million pounds of food annually to 400 customers - food banks and other nonprofits scattered through 20 states, but mainly in the Northwest and California. FBS has slots for four full-time employees, at least one of which is designated for a program person. Generally all of the 4-5 part-time employees are program people. Although FBS is not considered a sheltered workshop, they try to keep a minimum of 75% of its employees program people. FBS, like the other units, must turn a profit and provide opportunities for program people to work. Customers such as Trish Twomey of the large local nonprofit Fremont Public Association indicate that FBS s prices aren't always the lowest available. However, in Twomey s view, a record of reliability, good quality and service for nearly fifteen years justifies her continued reliance on FBS. Pioneer Contract Services and Warehousing Services is an expansion of services that FBS had been providing, repacking and warehousing products for other businesses. The first Contracting Services contractor was toy company Hasbro Inc. As part of that, PDS took on most of Hasbro s temporary labor pool, and a few of their permanent employees. Most of the work in these divisions is temporary, following the annual retail cycle. 18

29 Greater Seattle Printing and Mailing PHS's newest acquisition, purchased in January 1998, was funded with part of a $2 million Program-Related Investment (PRI) loan 3 from the Ford Foundation. Located in Redmond, a suburb twenty miles east of Seattle, Greater Seattle Printing and Mailing (GSP&M) is the most physically removed unit in the Enterprise group. This business employs seventy people in a variety of printing, fulfillment and mailing jobs projected revenues at GSP&M were $6.8 million. In February 1999 the first two trainees began working at GSP&M. PHS plans to bring a total of 5 on board by the end of the year, and the ultimate goal is 25 trainees at a time. The majority of jobs at GSP&M are entry-level, a consideration which made the business attractive to PHS. PHS plans to make this unit one of several starting points for workers to provide entry level opportunities for program people who can later move up into training slots or higher-skilled jobs. The facility may be ultimately moved to Seattle to be closer to their workforce and customers. Programs Group The divisions in the Programs Group, which represents the social service side of Pioneer, served more than 3,000 clients in This unit employs 260 people and in 1999 had projected revenues of $10.6 million (almost 20% of PHS total revenues). Programs consists of two divisions: Community Corrections Services, and Behavioral Health and Housing Services. The group's mission is to add social, personal and economic value to clients by creating housing and rehabilitative opportunities. There are no businesses per se in the Programs Group. The focus is purely on social services, but business practices are applied in these units as well. The corporate philosophy of self reliance provides a context or social atmosphere that affects the way the social service programs are operated. The clients served at the fifteen sites scattered throughout Seattle and north of the city are diverse: youth, families, adults with various mental and physical illnesses, and chemical dependencies. Funding for this group comes from numerous contracts with state and local agencies. 3 A low-interest (1%) loan, which will be repaid from GSP&M's proceeds over ten years. 19